tax law change

On Jan. 22, we gave a Donor-Friendly Webinar Briefing on the New Tax Law (goal being that you can use the content for your own donor-friendly briefings and/or invite leadership to join the webinar). This was the predominant request from among our 250 attendees to our initial briefing on the new tax law from last week (see below for comments on that session).

In addition to receiving the actual PowerPoint and the recording link, you will also receive draft donor-friendly pamphlet language – included with your registration.

Here is our first comment:

After sitting in your Tax Bill Seminar, I knew today’s seminar was something I needed. Unfortunately, I joined in late and didn’t download the presentation. Can the presentation be emailed to me? And, I’m definitely looking forward to the information coming out in “donor” language in the next couple of weeks. Really appreciate your explanations and not the typical “sky is falling” hype we’ve been getting.

This Monday – Jan. 22 – at 12 pm EST, we are offering a Donor-Friendly Webinar Briefing on the New Tax Law (goal being that you can use the content for your own donor-friendly briefings and/or invite leadership to join the webinar). This was the predominant request from among our 250 attendees to our initial briefing on the new tax law from last week (see below for comments on that session).

Maybe I was little ornery about other things when I saw that statement?

So, after a strongly worded voice message from the unnamed firm that put out the statement, and some reflection, I want to address the issue again.

Here is the quote that I took issue with (regarding the impact of doubling of the personal exemption in the tax bill): “Although the legislation maintains the current-law income tax charitable deduction, it will significantly reduce the number of taxpayers who itemize and effectively eliminate the income tax charitable deduction for a vast majority of Americans.” (I especially disliked the part I bolded as it makes it seem like they just effectively took away the income tax deduction – which is not true!)

Clearly many Americans will no longer need to itemize on their tax returns, and therefore may have less incentive to give to charity. I say “may” because we really have no idea what impact this will have on contributions, particularly looking at the typical profile of those who may no longer itemize.

I can tell you that for those still in the workforce, who pay real estate taxes and mortgage interest, and/or pay for their own medical insurance and/or have dependent children, and for sure those households with significant income (let’s say $150,000+), will surely continue to itemize. In fact, the charitable deduction will be more important to those people as the bill limited some other deductions. In other words, your major gift prospects will still be incentivized to make charitable gifts!

What about planned giving donors? The other provider I quoted in my last post claimed that “Planned giving donors are still expected to itemize their deductions.” Now that my bias has been revealed, this statement doesn’t seem to be 100% true either. For “planned giving donors” who are really major gift donors creating planned gifts like CRTs, yes – they are likely to continue to itemize on their tax returns.

But, the largest group of planned giving donors are those who make simple bequests (over 80% of planned giving dollars to higher education from FY05 – FY16 came from charitable bequests – see my VSE talk from the summer). In other words, many typical bequest donors are older and have already moved out of the workforce, may have downsized and no longer own real estate, and may in fact be the precise community in America which will have less incentive to make charitable gifts!

Of course, I have found that donors who average $50 gifts and have made 15 or more gifts to an organization (my own testing from various client situations) seem to be the best profile for a charitable bequest.

Is the $50/multi-year donor going to hold back on gifts because he or she may no longer be required to itemize? I doubt it but time will tell.

Clear take away message – these bequest planned giving donors are perfect for IRA direct rollover giving!!! So, start working on promoting it to compensate those who no longer itemize! In any case, you may get gifts from those who still itemize.

Lastly, the Washington Post – the reigning anti-Trump champions who drive me crazy with their unabashedly biased reporting – published a piece on this topic (click here to see it) claiming that charities are seriously worried and upset that they will have to focus more on wealthier prospects (kind of ironic since that is already the case!). Of course, I disagree with anything the Washington Post has to say because everything that seems to come out of that paper is biased and agenda driven.

Nevertheless, while I still disagree with their premise, I do see something good coming from this mini-movement claiming that charities are getting hurt by the tax bill. Maybe the Republicans can be shamed enough to throw nonprofits a tax bone or two?

How about allowing anyone age 59.5 and older the ability to use the IRA charitable rollover provision?

Or, a universal deduction for charitable giving? Change where it shows up on the tax return so it applies whether you itemize or not.

How about allowing IRA rollovers to establish planned gifts like CRTs or CGAs?

If something can be squeezed out of this hysteria, that would make the hysteria worth it.

So, do I apologize? Yes, for the tone and for singling out one provider (even though I didn’t mention their name). But, I can’t back off on my critique of the substance.

There still needs to be some negotiations between the House and Senate to come up with a final bill but they are pretty close. My accountant even told me to make sure I pay up my back state taxes owed since 2017 is probably the last year I can deduct them.

Ok – for Nonprofits – what is the bottom line? Anything terrible? Any advice for our donors? Good, bad or ugly for planned giving?

Here is my take on a few provisions that might be relevant to nonprofits:

The “standard deduction” is definitely going up – probably doubling. As a head of household, I will get around a $24,000 standard deduction. Seeing that I will still get the mortgage interest deduction as well as up to a $10,000 deduction on my real estate tax, I probably will still be an itemizer. In other words, donors who have significant expenses like mine will likely not be impacted. My verdict: no impact on nonprofit fundraising.

529 plan expansion – Under the House bill, parents may set up 529 plans for unborn children. Additionally, up to $10,000 per year of plan funds could be used for private elementary and secondary school expenses. Under the Senate bill, 529 savings plans could be used for public, private and religious elementary and secondary schools, as well as home school students. My verdict: might be very good for private schools – families with extra funds will be encouraged to park large sums in 529 plans to be used throughout private elementary and college years as a tax-free (on growth) fund. No impact on fundraising that I can see unless people tell you that they are funding 529 plans instead of giving you charitable gifts.

Estate tax repeal – Under the House plan, the federal estate tax would be phased out and completely disappear after 2024. Under the Senate plan, the federal estate tax would remain, but the exemption for federal estate and gift tax would double. In other words, we will have an estate tax, just applying to even less people. My verdict: not great for planned gifts like Lead Trusts which are driven by estate tax avoidance but no impact on planned giving as a whole or other vehicles.

Excise tax on big University Endowment Investment Income – Under House proposal, private universities with assets of more than $100,000 per student will pay a 1.4% excise tax on their net investment income. Small colleges will be exempt from the tax. Not sure how the Senate addressed this issue but I suspect it won’t end up in the final bill. For some reason it was not brought up in the Forbes article, it only impacts the biggest private schools (around 100 of them). My verdict: not sure.

I have been through too many “feared” tax law adjustments to be overly concerned about the impact on nonprofit fundraising. Since they are not tampering with the charitable income tax deduction, my hope is that those who benefit from the changes will be give more to nonprofits.

Still, there’s a lot of musical chairs scrambling going on here (fooling around with tax code under the current condition that is must be revenue neutral means there has to be winners and losers) so we won’t know the impact of the law for years to come.